What happened

Shares of Agenus Inc. (NASDAQ:AGEN), a clinical-stage immuno-oncology company, fell 13.6% in July according to data from S&P Global Market Intelligence. Investors viewed a clinical-trial failure reported by AstraZeneca as a harbinger of sorrow for similar candidates in its own pipeline.

So what 

Aside from an adjuvant featured in GlaxoSmithKline's shingles-vaccine candidate, Agenus Inc.'s future hinges on success for new drug candidates that inhibit a cancer cell's ability to exploit the CTLA-4 and PD-1 immune-response checkpoints. This is why the market beat up Agenus when AstraZeneca reported its combination of tremelimumab, which blocks CTLA-4, and Imfinzi, which blocks PD-1, failed to provide a significant survival benefit compared to standard chemotherapy for previously untreated patients with stage-four lung cancer.

Frustrated trader looking at dozens of stock charts.

Image source: Getty Images.

Agenus Inc.'s anti-CTLA-4 candidate, AGEN1884, and its anti-PD-1 candidate, AGEN2034, are in early-stage clinical trials, so it's far too early to know if they'll eventually disappoint. Last month's market beating, which has spilled over into August, is simply a case of guilt by association.

Now what

Checkpoint inhibitors work extremely well for some patients, but investors are right to worry that their application might be far more limited than previously imagined. That said, Agenus is a tiny company compared to AstraZeneca, which dipped a bit less than Agenus last month.

Beyond CTLA-4 and PD-1, the company could also see some high-margin royalty revenue from Incyte, if either of the GITR and OX40 checkpoint-inhibiting candidates that the big biotech licensed from Agenus succeed in the years ahead. Plus, Agenus Inc.'s QS-21 Stimulon adjuvant is a component of a shingles vaccine that's awaiting a decision from the FDA. If the agency gives Shingrix a widely expected green light, the royalties alone could just about justify Agenus Inc.'s tiny $398.5 million market cap.

Checkpoint inhibitors might hit a ceiling, but that ceiling is high enough to give Agenus multi-bagger potential over the long term.

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